WaMu could lose 80% of Chicago branches in takeover by Chase

(Crain's) -- J. P. Morgan Chase & Co. is likely to shut down all but 15% to 20% of Washington Mutual Inc.'s Chicago-area branches, according to the real estate broker who brought the Seattle-based bank into the market in the first place.

(Crain's) -- J. P. Morgan Chase & Co. is likely to shut down all but 15% to 20% of Washington Mutual Inc.'s Chicago-area branches, according to the real estate broker who brought the Seattle-based bank into the market in the first place.

Greg Kirsch, principal in the Chicago office of Newmark Knight Frank, a New York-based real estate brokerage, said obvious candidates for closure are WaMu branches close to Chase's own and those with leases nearing expiration.

WaMu, which collapsed under the weight of its enormous bad bets on the mortgage market, was seized Thursday by the Federal Deposit Insurance Corp., which then sold the thrift's banking assets to J. P. Morgan Chase for $1.9 billion.

Banking industry sources have said J. P. Morgan is expected to close most of WaMu's 117 locations here and move the deposits into its existing network.

All told, J. P. Morgan said it will shut down 400 to 500 branches of the combined bank across the country. It's likely that most of the closings will take place in the seven states where both banks overlap: Illinois, Texas, New York, Colorado, Utah, New Jersey and Connecticut. A J. P. Morgan spokesman said there was no breakdown for the number of closures in Illinois.

"When it's done, (J.P. Morgan and WaMu) customers will have more branches and ATMs than they had separately," the spokesman said.

The Seattle-based bank entered Chicago five years ago with a flurry of branch openings across the city and suburbs.

Unlike traditional banks -- which build expensive, free-standing bank branches with drive-thrus on land leased for 20 or more years -- WaMu signed five- to 10-year leases in more conventional retail space, often grocery-anchored shopping malls.

Those less-traditional locations could be the ones that end up on the chopping block, said Nancy Bush of NAB Research LLC in New Jersey.

"My understanding is that WaMu in Chicago hasn't picked the best locations," she said.

Getting out of leases is typically expensive, but J. P. Morgan may benefit from WaMu's unconventional approach in Chicago.

"They purposely had short lease terms and inexpensive space," so that if the company's strategy failed, it could quickly shut down stores at low cost, said Mr. Kirsch, who represented WaMu when he was working for a different firm.

WaMu's local presence doesn't hold much allure for J. P. Morgan, already the biggest bank in Chicago with 340 branches and 14,000 employees. It's WaMu's West Coast retail franchise that J. P. Morgan covets, as a way into markets from which it is largely absent.

In its rapid-fire Chicago market entry, WaMu built many branches in less-than-optimal locations like strip malls. Its deposit growth has been slow, with just $1.37 billion in deposits as of June 30, 2007, the most recent data available from the FDIC. That accounted for a deposit marketshare of 0.5%.

J. P. Morgan, on the other hand, has the metro area's largest marketshare. Its $39 billion in deposits, as of June 30, 2007, gave it 14.5% of Chicago's market.

Before it failed, WaMu, one of the nation's most aggressive mortgage lenders during the home-loan boom earlier this decade, was seeking a buyer because of worries that it didn't have enough capital to absorb future losses on the mortgages still on its books. It became the focal point of market concern following the recent failures or sales under duress of Lehman Bros. Holdings Inc., Merrill Lynch & Co. and American International Group Inc.

WaMu, which was founded in 1889, is the largest bank to fail by far in the country's history. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July.

J. P. Morgan said the acquisition will give it 5,400 branches in 23 states, and that it plans to close less than 10% of the two companies' branches.

Crain's senior reporter Steve Daniels and the Associated Press contributed to this report.